Like for many businesses, end of year is a busy time at Groom Energy. Our engineering team is scrambling to satisfy utilities’ requirements, our back office is beginning year-end closing and our customers are pushing us to complete projects with budgets that disappear if unused.
With the EPAct tax deduction expiring on New Year’s Eve, this year’s end-of-year push was even more harried. Starting last October we began hearing customers ask us for confirmation that their projects would be EPAct eligible, meaning they had to be “in service” before the champagne bottles were popped. We even saw some stalled projects being approved principally because companies thought EPAct was disappearing.
It seems like forever ago that EPAct went live. Originally introduced in August of 2005, Federal guidance for how to claim EPAct’s benefits weren’t even solidly defined until early in 2007. The Act was a part of our last official US national energy policy, authored by the Bush administration. It defined a deduction incentive of up to $1.80 per square foot of affected space for qualifying efficiency improvements in Lighting, HVAC, and Building Envelope. The deduction was in the form of taking accelerated depreciation on these investments.
Since then it’s been a bit bumpy, with the Act having been criticized, but still extended as part of a flurry of stimulus packages in 2008′s economic meltdown. But this past year customers had priced in that Washington would not come to agreement that it should extend it yet again. Fracking and solar growth made last night’s State of the Union address, not EPAct. (Even the Secretary of Energy was the one selected to “stay home”.)
Before the beginning of last year some believed that Senator Snowe’s (I-ME) proposed Commercial Building Modernization Act (CBMA), with relatively unusual bi-partisan support, might successfully navigate the labyrinth in Congress. The CBMA would have corrected some of the principal flaws inherent in the EPAct 179D incentive. First it would have increased the value of the tax deduction from $1.80/square foot to $4.00/square foot, while allowing a sliding scale for initiatives that delivered less than 50% energy savings against ASHRAE 90.1 2001 standards. It would have also loosened rules around the beneficiary of the incentive, allowing a huge new pool of REIT owned facilities to enjoy the deduction, where with owner tenant buildings, investments by tenants previously gained no EPAct incentive.
Unfortunately the bill was sent to the scrap heap in the Finance committee after Sen. Snowe announced in late 2012 that she would not run for re-election, citing the extreme partisan nature of the Senate.
A similar initiative, co-sponsored by Senators Portman (R-OH) and Shaken (D-NH) in late 2011(Shaheen-Portman (S. 761) has yet to gather a visible level of interest.
With no national energy policy in the last six years and little hope for EPAct renewal, there are few reasons to be optimistic that similar policy encouraging corporate energy efficiency investment will happen in the near term.
So brainstorm for a bit. Imagine that for a day everyone in Congress and the Senate got along and the President dropped by to talk about Google’s Nest acquisition, and how Washington really needs to approve something which addresses energy efficiency. In this dreamworld what policy should they author?
Real estate owners of hotels and commercial offices want to see incentives that are assignable to their energy installation partners. Trying to allocate tax deductions across a wide range of Limited Partners (179D) is too complex. They’d also like to see scaling incentives for different levels of HVAC and building envelope improvements.
Obviously moving from a tax deduction to a tax credit would provide a more direct incentive to a wider range of institutions. Manufacturing owners want this. During the capital budgeting processes most management teams don’t acknowledge the EPAct effect on their investment. However, they do get credit for utility rebates, and use the net payback in their internal budget requests. Clearly, for them, cash back through a tax credit would work better than accelerated depreciation.
Our engineers also note that EPAct’s standards for HVAC and building envelope were too complex (a full building software model was required for full credit.) As a result, most companies taking EPAct credits only managed to qualify for the lighting deduction. $1.20 of the $1.80 in available incentives was rarely taken.
Washington could consider these sorts of issues, with our politicians working on what they are supposed to be good at doing – which is defining forward-thinking policy that is straight-forward to implement, and refines prior policies which weren’t as successful as hoped.
But let’s not forget…we were just dreaming.
